Telecom equipment maker ZTE Corp shuts down main business operations

ZTE Corp., China’s second-biggest telecom equipment maker after Huawei, is facing a death sentence. The company was hit by a ban from the US government last month after it was found to have violated US export restrictions by shipping goods to Iran and North Korea. The ban prevents US companies from supplying ZTE with technology and components, which make up a third of ZTE’s requirements. Faced with the prospect of a complete shutdown of a large chunk of its supply chain, ZTE announced yesterday, May 9, that its main business operations have stopped effective immediately.

In an “Inside Information Announcement” released yesterday, ZTE wrote, “As disclosed in the announcement of the Company dated 20 April 2018, BIS [the Bureau of Industry and Security] has issued an order for the activation of a denial order (the “Denial Order”). As a result of the Denial Order, the major operating activities of the Company have ceased.” The Bureau is an agency of the United States Department of Commerce that issued the ban after claiming that ZTE had violated the terms of a previous settlement over admissions of illegal shipping of US technology to Iran, and making repeated false statements.

ZTE paid a record fine of nearly $900 million as part of the settlement and disputes the latest claims of wrongdoing by the US government.

In its statement, the company added, “As of now, the Company maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations. The Company and related parties are actively communicating with the relevant U.S. government departments in order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of the matters.” According to Reuters, the firm did not respond to requests for comment, although it said on Sunday that it had submitted a request to the US Commerce Department for the suspension of the ban while it gathered more information and passed it along.

ZTE, or Zhongxing Telecommunications Equipment, was initially founded in 1985 as Zhongxing Semiconductor Co. Ltd., a joint-venture between China’s Ministry of Aerospace and private investors. The firm eventually evolved into the publicly traded ZTE Corporation, and currently operates three business units – carrier networks, terminals, and telecommunication. ZTE’s core products are wireless, exchange, access, optical transmission, and data telecommunications gear; mobile phones; and telecommunications software, along with products that provide value-added services, such as video on demand and streaming media.

Based on the Reuters report, “ZTE appears to have suspended its online stores on its own website as well as on Alibaba Group’s e-commerce platform Taobao over the past few days, which display a ‘page being updated’ message with no products to order.” ZTE’s announcement also comes against the backdrop of news a few days ago that the government-backed China Integrated Circuit Industry Investment Fund Co. is planning to launch a new fund worth around 300 billion yuan (US$47 billion) in the coming weeks. China is increasingly pushing to reduce the reliance of its companies on the US and other external suppliers for components and technology, and ZTE’s operations closure could just be the incident that escalates the US-China trade war to new heights.